The Federal Reserve should proceed with caution in adjusting policy, Chair Janet Yellen said Tuesday, acknowledging that economic and financial conditions are in some respects less favorable now than in December.

Yellen, speaking to the Economic Club of New York, noted in prepared remarks that recent readings on the strength of the U.S. economy since the beginning of the year have been mixed. All major U.S. indexes turned positive and Treasury yields hit multi-week lows after the release of Yellen's remarks.

On the policy front, Yellen said research suggests that, with a funds rate at zero and increased uncertainty, the best policy is greater gradualism. Still, the Fed can hike if the economy grows faster, she said. But if the economy falters, she added, the Fed can "provide only a modest degree of additional stimulus."

In fact, Yellen said that only gradual increases in the federal funds rate are likely to be warranted in coming years, and global developments have increased the risks associated with the Fed's economic outlook.

On inflation, Yellen sounded a cautious note, saying it is "too early to tell" if the recent faster pace of core PCE inflation (excluding volatile food and energy components) will prove durable. In fact, she said she continues to expect overall PCE inflation for 2016 to come in "well below" the Fed's 2 percent objective. Yellen added that continued low readings for some expected inflation indicators "concern" her.

"The inflation outlook has also become somewhat more uncertain since the turn of the year, in part for reasons related to risks to the outlook for economic growth," she said. "To the extent that recent financial market turbulence signals an increased chance of a further slowing of growth abroad, oil prices could resume falling, and the dollar could start rising again."

Responding to a question after her remarks, Yellen said the "major thing that's changed" between December and March affecting the Fed's baseline outlook is "a slightly weaker projected pace of global growth."

The Fed chair had said in her speech that "foreign economic growth now seems likely to be weaker this year than previously expected," but the "overall fallout" of global market developments for the U.S. will most likely be "limited."

Yellen's remarks come after a dovish Fed opted to leave interest rates unchanged earlier this month. In its statement, the Federal Open Market Committee noted that "global economic and financial developments continue to pose risks" to U.S. economic growth, and that inflation was "expected to remain low in the near term."

Still, since then, several Federal Reserve officials have said publicly that a rate hike could be coming soon. Fed watchers had consequently expected Yellen to lean dovish in Tuesday's speech to battle markets' expectations of an impending hike.

"The relatively minor (economic) downgrades ... suggest that the next rate increase may not be far off provided that the economy evolves as expected," St. Louis Fed President James Bullard said last week.

Other officials, including Philadelphia Fed President Patrick Harker and the Atlanta Fed's Dennis Lockhart, have said in recent weeks that the Fed should consider an April hike.

Federal Reserve projections from earlier this month showed that a majority of officials — nine of 17 — expected only two hikes in 2016.

"I think we're finding out that Ms. Yellen is a lot more dovish than any Fed chair we've had in quite a while, and she's clearly positioned today that she is as concerned in global matters as she is about U.S. matters — which is a new thing," United Capital CEO Joe Duran told CNBC's "Power Lunch" after the remarks. In fact, he said, "today's speech makes me wonder if we'll get to one" hike in 2016.

Following the release of Yellen's remarks, markets were only pricing a 7 percent chance of a rate hike in April, according to CME Group data. The first better-than-50-percent chance of a rate hike was in November, as September slipped to 49 percent, the data showed.